ADVERTISEMENT

Demonetisation Hits Raipur’s Iron And Steel Traders Hard

Raipur’s steel and iron traders claim they stand to lose Rs 40 crore over the next two weeks.

Vendors wait for customers at a wholesale steel market in, India. (Photographer: Dhiraj Singh/Bloomberg)
Vendors wait for customers at a wholesale steel market in, India. (Photographer: Dhiraj Singh/Bloomberg)

On Tuesday, the government surprised the country by announcing that all Rs 500 and Rs 1000 notes will cease to be legal tender in an effort to unearth black money and counterfeit currency. The sudden ban and lack of adequate new currency notes has prompted a liquidity crunch across industries especially smaller and medium sized businesses that depend on cash transactions.

One such segment is the iron and steel trade industry in Raipur, where according to the Raipur Iron and Steel Trade Association president Sanjay Jain, the demonetisation drive has led to a severe drop in business, which in turn means that manufacturing units are on the verge of shutting down.

Jain claims retail trade has been hit the most, not just in Chhattisgarh, but across the country. He added that manufacturing continues in some pockets but with the lack of funds may bring it to a halt. Besides, the cash crunch has meant few buyers in the market.

BloombergQuint spoke to Kamal Aggarwal, former president of the association on the prevailing situation in the Chhattisgarh. Aggarwal said trade has stalled and the market will lose crores of rupees in the coming days if cash-availability doesn’t improve.

What has been the impact of the currency demonetisation in the last two days on the steel market?

This market is completely dependent on cash for its usual business and since the flow of cash has stopped, the market has stopped too. There are about 800 participants just in the Raipur association who are currently sitting jobless, on piles of stock but no cash to conduct their business. Till the time cash returns to the market, the situation will be like this and it will only add to our losses which were already mounting due to bad market conditions for industrial steel.

How big is the negative impact of the demonetisation? Does the entire market run on cash?

The speed and flow of the market has been completely interrupted. Everyone has Rs 500 and Rs 1000 notes which are no longer acceptable. Buyers want to pay in the old currency (Rs 500 and Rs 1,000 notes) and suppliers are not accepting old currency (Rs 500 and Rs 1,000 notes) so the whole trade cycle has been stuck for a two days now.

It’s not just us. It’s the whole market that runs on cash. Cash is the conventional mode of payment for most things here. If we are buying supplies from a small trader, he would want his payment in cash and similarly, buyers for our goods want to pay in cash. Daily trade run on cash.

What about other modes of payment? Aren’t people accepting cheques and other instruments?

Cheque payments only work for the big players in the market who can afford to wait for two-three days for the cheque to clear.

But even they are not accepting cheques anymore since cheques also need to be converted into cash and banks have placed a limit on withdrawals. No matter which mode of payment is used, there’s cash involvement at some level and the market can’t function smoothly if you squeeze cash out of it.

Since nobody (in the market) has cash with them anymore, we are all sitting without any work to do.

How big is your market and what is going to be the impact of this move in monetary terms?

There are 200 rolling mills, 100 furnaces, 50 sponge iron plants, about 200 steel traders and another 250 agents in this market alone and the steel industry of Chhattisgarh is much bigger. All these players are independent.

Traders can’t work without manufacturers providing goods and manufacturers can’t produce when suppliers are not accepting old currency (Rs 500 and Rs 1,000 notes).

Right now, all activity has come to a halt. People have stocks of goods but there’s no buyer or supplier in the market because cash isn’t available. The full chain is interlinked and if one part stops working, other parts start getting affected too.

We can’t even pay the labourers because they don’t know banks and don’t have accounts. Daily wage labourers work on cash only and if we can’t pay them, they won’t come to work so the market anyway doesn’t have the capacity to serve customers but there are no customers right now.

There will be losses of at least Rs 40 crore in the market over the next two weeks. And the losses will only increase if the cash availability doesn’t improve. Business has come down to just a quarter of what it was two days ago.

When do you think normalcy will return to the market?

The normalcy will only resume after November 24 when the RBI increases the limit on cash withdrawals. But these losses won’t be recovered any time soon. The whole market has been making losses for some time now since the prices are low and cost of manufacturing is quite high. This will only add to the stress in the market and those who have cash will be able to speculate and influence prices as well.

It is all about payments. If the payment flow is good, then the market functions smoothly but right now there’s nobody with money in hand since the flow has stopped. Everyone is sitting idle. Let’s see what happens after the 24th (of November) when the speculation ends and people have money to run their business.